I’ve long believed in Intertek Group (LSE: ITRK) as a brilliant growth bet investors can hang their hat on. And my confidence in the business – which is involved in the inspection and testing of products across a wide range of industries – was reinforced by recently-released trading numbers.
Last week the FTSE 100 firm advised that group revenues rose 4.4% at constant exchange rates in the four months to the close of April, to £861.2m. Intertek said that this improvement was “driven by a good organic growth of 4% at constant rates and by the contribution of the acquisitions we made recently in attractive growth and margin sectors.”
The headline number was less impressive and thanks to adverse currency movements, the business actually saw revenues slip 2.5% from a year earlier. It’s not a surprise to see market makers ignore this reversal however, and send Intertek’s share price to within a whisker of last autumn’s record above £54 per share.
Products still improving
The market cheered news that the breakneck momentum at Intertek’s core Products arm has continued, and organic sales here rose 6.6% during the first four months of 2018, speeding up from the 5.5% advance printed in 2017.
And Intertek believes there is much more to come, the firm commenting that the division “will benefit from mid-to-long term structural growth drivers including product variety, brand and supply chain expansion, product innovation and regulation, the growing demand for quality and sustainability from developed and emerging economies, the acceleration of e-commerce as a sales channel, and the increased corporate focus on risk.”
Elsewhere, the business saw organic sales at its Trade and Resources units rise 0.6% and 0.3% respectively in the period.
A quality selection
The global quality assurance market is worth many, many billions of pounds, and thanks to its broad geographic and sector diversification – it has in excess of 1,000 sites in more than 100 countries – Intertek is well placed to latch onto this opportunity.
What’s more, Intertek remains busy on the acquisition trail to boost its operational and territorial bulk. Last month it snapped up Colombia-based Proasem which is “a leader in laboratory testing, inspection, metrology and training services” for an undisclosed fee. And Intertek’s impressive cash generation should keep the M&A action coming thick and fast (free cash flow of £341.6m in 2017 was up 7.4% year-on-year).
Dividends to keep bouncing
Intertek has proved to be a brilliant pick for dividend chasers in recent times, the company hiking the dividend 35% over the past three years alone. And thanks to its strong balance sheet and bright earnings outlook — the City is expecting bottom-line advances of 1% and 8% in 2018 and 2019 alone — share pickers can look forward to further dividend rises.
Last year’s 71.3p per share payment is predicted to bound to 89.7p this year and again to 98.2p next year, estimates that create yields of 1.7% and 1.8%.
Intertek’s forward P/E ratio of 27.3 times might be expensive on paper, but in my opinion this is a small price to pay given the company’s significant structural opportunities and its exciting growth strategy, factors that should keep dividends growing at quite a pace.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Intertek. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.